Across industries, companies spent $2 billion on class action lawsuits in 2014, slightly less than the $2.1 billion they spent in 2013. This year, spending is expected to return to 2013 levels.
Companies’ class action dockets increased on average by one new case in 2014, bringing the average number of class actions managed to five. This total is expected to remain constant in 2015, as the number of new matters is likely to be offset by those resolved.
As before, consumer fraud and labor and employment remain the most prevalent class action matters. They account for more than 50 percent of all class actions, down somewhat from 2013. As predicted in last year’s report, data privacy emerged as a class action growth area. Insurance also made its first showing on the list.
Looking ahead, corporate counsel are bracing for an expected wave of data privacy class actions. Twenty-nine percent predict these matters will pose the greatest class action threat.
Across risk levels, class actions can result in substantial financial exposure. Corporate counsel reported that even routine class actions often place tens of millions of dollars at risk. With each increase in risk level (from routine to complex to high-risk to bet-the-company), the potential exposure jumps dramatically (well into the billions) as do fees paid to outside counsel. Just three years ago, only 4.5 percent of class actions qualified as high-risk or bet-the-company. That percentage has more than tripled, to 16.4 percent. As a result, corporate counsel have increased class action spending, as they confront the exposure these cases present.
Class actions typically resolve in one fashion or another—very few go to trial. Most resolutions occur prior to a decision on class certification, but in a relatively sizeable percentage, resolution comes later. If a lawsuit continues after the certification decision, settlement may be considered. If certification was denied, settlement is often quick and inexpensive. If it was granted, the degree to which settlement makes sense will depend on various factors, including damage and cost containment, minimized reputational damage, predictability regarding outcome, and less business disruption.
Recognizing that accountability is required to contain class action risks, companies are increasingly making a single individual accountable for the outcomes of their class action lawsuits. In 2014, more than half of surveyed companies took this step, up from 38 percent in 2011. This move toward accountability is associated with a decrease in per class action spending on outside counsel as well as overall.
Companies also report that early case assessment is critical to effective class action management, and nearly 49 percent deem outside counsel essential to that process, up from 32.6 percent the previous year. Legal departments increasingly involve outside counsel in these assessments at the earliest stages, particularly as a matter’s risk level rises. Companies that do so experience savings of 25.5 percent per class action matter, up from 22.3 percent in 2013.